The writer is founder and chief executive of Trivariate Research Equity investors who are used to buying low and selling high have struggled for a long time in the US. Many stocks that appear to be attractively valued based on low multiples of their forecast earnings do not subsequently outperform. Hence, buying “medium-to-high” has worked better than buying “low” for many years.
8 per cent over the past few years, and this is certainly meritorious of a higher multiple, the question is how likely is it for a stock to maintain a valuation as high as the company’s current premium rating? We evaluated the precedents of businesses that trade at 50 times price-to-forecast earnings or higher for the first time in a rolling three year period going back to 1999. The recovery periods of 2009 and 2020 saw multiple expansion of this magnitude for many stocks.